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Wally Weitz: We Were Net Sellers into the Year-End Rally; Comment on New Positions: IRM, RSG, SWN

January 24, 2011 | About:

Wally Weitz of the Weitz funds had a good year in 2010. All of his funds did far better than the market. His funds were net sellers during the 4th quarter. He is planning to “trade around” his positions.

These are some of his new positions he commented in his latest shareholder letter:

Iron Mountain (NYSE:IRM) and Republic Services (NYSE:RSG)

Iron Mountain and Republic Services are terrific companies that we have owned before. Iron Mountain is the global leader in the prosaic, but very profitable, business of storing paper-filled boxes. Republic Services is the second largest waste collection and disposal company in the United States. Both are predictable, competitively entrenched, physical network businesses that generate significant free cash flows. Both have highly capable, shareholder-friendly management teams. Both pay solid dividends and are buying back stock. Finally, both have the potential to grow per share value at a healthy rate over the coming years.

Republic Services, Inc., is a provider of services in the domestic non-hazardous solid waste industry. Republic Svcs has a market cap of $11.73 billion; its shares were traded at around $30.52 with a P/E ratio of 19 and P/S ratio of 1.4. The dividend yield of Republic Svcs stocks is 2.6%. Republic Svcs had an annual average earning growth of 10.3% over the past 10 years. GuruFocus rated Republic Svcs the business predictability rank of 4.5-star.

Iron Mountain (NYSE:IRM)

We purchased one new stock during the quarter. Iron Mountain is the global leader in the prosaic, but very profitable, business of storing paper-filled boxes. The company operates a large network of storage locations around the country and, increasingly, around the world. Iron Mountain receives recurring monthly fees, plus service charges for moving, accessing or destroying the documents that it stores. After years of investing aggressively in its network, the company is now reaping the cash flow benefits. Management is returning capital to shareholders via a 3% dividend yield and share repurchases. We bought this very predictable, competitively entrenched, moderately growing business for eleven times free cash flow last fall. At those levels we thought the stock offered good downside protection with substantial upside potential.

Ingersoll Rand Company is one of the providers of security and safety, climate control, industrial productivity and infrastructure products. Ingersoll Rand has a market cap of $14.95 billion; its shares were traded at around $46.14 with a P/E ratio of 20.1 and P/S ratio of 1.1. The dividend yield of Ingersoll Rand stocks is 0.6%.

Southwestern Energy Company (NYSE:SWN)

We purchased a small new position in Southwestern Energy Company during the quarter. Southwestern is a best-in-class, low-cost natural gas producer with attractive growth prospects. The company is the dominant player in the Fayetteville shale, a large and productive gas field in Arkansas. Even at today’s low natural gas prices, Southwestern generates solid all-in returns on capital in the Fayetteville. We expect the company to profitably grow production and reserves at a healthy clip for several years in this shale play alone. In addition, Southwestern owns acreage in the Marcellus shale, valuable but non-core midstream assets and a portfolio of longer-range venture projects. While our investment thesis does not depend on it, we also think this stock provides a cheap option on higher natural gas prices over the next several years.

Southwestern Energy Company is an energy company primarily focused on natural gas. Southwestrn Ene has a market cap of $13.54 billion; its shares were traded at around $39.05 with a P/E ratio of 22.3 and P/S ratio of 6.3. Southwestrn Ene had an annual average earnings growth of 20% over the past 10 years.

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 2.9/5 (7 votes)


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